The amount of debt accumulated by Canadian households has skyrocketed to $2.16 trillion in 2018. And while borrowing has cooled due to the new mortgage rules, many Canadians live beyond their means and have credit history problems as a result of this.

Canadians Live Beyond Their Means

A survey conducted by the Canadian Payroll Association reveals that around 48 percent of Canadians live paycheck to paycheck. This is a troubling fact which shows that many people are financially vulnerable. Cheap credit partly explains why half of the respondents do not have an emergency fund for a rainy day. Yet, the fact that many Canadians spend their entire earnings and borrow on top means that they live beyond their means. A recent survey by the Canadian Imperial Bank of Commerce confirms this. The survey shows that 50 percent of respondents are unwilling to downgrade and trim unnecessary and non-essential spending. This is a worrisome finding in light of the fact that essential expenses such as rent and groceries already eat up a large percentage of households’ disposable income.

People who live paycheck to paycheck often carry a balance and only pay the minimum. Many have multiple credit cards and other debt such as personal loans and mortgages. They never set a monthly budget and short – and long – term financial goals. The problem with living large is that many people are unable to save at least 5 percent of their disposable income. This puts them in a vulnerable position when faced with a major crisis such as loss of income or employment, divorce, or prolonged illness. Then many are forced to resort to high-interest rate loans to pay bills and make ends meet.

Using Payday Loans

A survey by the Financial Consumer Agency shows that 4.3 percent of Canadians resorted to payday loans in 2014, up from 1.9 percent in 2009. The majority of respondents or 45 percent borrowed to pay emergency expenses such as car or household repairs while 41 percent used the money to pay expenses such as electricity, water, and heating bills. And while 70 percent of respondents used their paycheck to pay off the balance, 7 percent of people admit that they took a new loan. Others used their credit card, sold something of value, used an overdraft, or borrowed from family or friends. One of the main problems is that many people are not aware of the fact that payday loans come with very high interest rates. Some 43 percent of respondents admitted that they were not aware of this. The majority of respondents or 88 percent reported that they were unable to access a line of credit. Poor credit rating and history are major obstacles for many borrowers who are forced to resort to costly alternatives.

Accumulating Too Much Credit Card Debt

According to an Ipsos poll, Canadians owe over $8,530 in consumer debt on average, and 14 percent of respondents carry balances between $10,000 and $24,999. It is obvious that Canadians tend to accumulate excessive card debt, and data by Bankruptcy Canada confirms this. Some 75 percent of people carry a balance on a monthly basis while 25 percent pay it in full. The problem with credit cards is that many opt for products with high interest rates just to take advantage of complimentary bonuses, discounts, and rewards points. Many are also tempted to make card purchases just to collect points.

Credit History Problems

A good score is one in the range of 660 – 700 but data by Refresh Financial reveals that some 20 percent of Canadians have scores that are below 600. Data by Equifax Canada shows that close to 3 percent of borrowers have a very low score below 520, which puts them in a high-risk category. At the same time, this is not surprising given that 65 percent of Canadians check their score once a year or have never bothered to check it. What is more, people of working age hold 2.2 credit cards on average. Card debt also makes for about 5 percent of the total debt carried in Canada. The problem is that it accounts for 15 percent of all monthly payments and increases to 88 percent if borrowers were to pay off the balance in full.

Poor credit rating is a serious problem for many Canadians because it leaves them with few options for accessing new credit. Brick-and-mortar financial institutions are often unwilling to approve customers with financial problems as they are viewed as less trustworthy. In times of financial hardship, life crisis, or emergency, borrowers with poor credit are forced to resort to payday lenders and pawnbrokers. And the problem is that this often leads to a spiral of debt.

Making Poor Financial and Investment Decisions

Purchasing Decisions

Bad financial decisions are usually the result of poor money management skills and lack of financial literacy. People who are financially literate have good knowledge of basic concepts such as net income, annual percentage rate, amortization, compound interest, certificates of deposit, etc. People with poor money management skills lack basic knowledge and make bad purchasing decisions. They tend to splurge and buy non-essential items such as alcohol, tobacco, and candy even when they are short on cash. Many people cannot prioritize and tell the difference between non-essential and essential spending. Examples of essential expenses include things such as baby items, laundry, health-related expenses, rent, and utility bills. The list of non-essential expenses, on the other hand, includes items such as video games, haircuts, lottery tickets, dry cleaning, vacations, etc. These are things that people normally can live without. Many people make poor purchasing decisions like buying on credit and buying items they don’t really need. They also tend to make impulse purchases that they cannot really afford. Some people also buy expensive things just to show off, whether it is a new phone or laptop, vacation abroad, or a luxury vehicle. Outdoing family, friends, or colleagues is a poor idea, especially for people who live from paycheck to paycheck and buy expensive items on credit.

Investment Decisions

Many people also make poor investment decisions, and the main reasons are that they set the wrong investment goals and have a lower risk tolerance than they think of. Persons who have low risk tolerance and basic knowledge are usually advised to invest in products such as municipal bonds, certificates of deposit, and savings accounts. Those with extensive experience and high risk tolerance often benefit from investing in products such as hedge funds, penny stocks, and futures and options. Other products that help savvy investors to make good profits include leveraged ETFs, junk bonds, spread betting, venture capital trusts, and unregulated collective investment schemes. While high-risk products offer high returns, they are a good choice for people with knowledge of advanced concepts such as contingent deferred sales charge, capital gains reinvest NAV, dollar cost averaging, and Lipper ratings. Finally, savvy people know the difference between short-term and long-term investments. Short-term products include municipal bonds, short-term bond funds, and certificates of deposit. Long-term products are real estate, long-term bonds, real estate crowdfunding, and real estate investment trusts.

Cash advances are offered by different establishments, including charge and credit card issuers. Basically, this is a way to withdraw money from your credit card over the counter or from an ATM up to the available credit limit. Another option is to use a convenience check. The problem with cash advances is that interest charges begin to accumulate immediately. When you charge purchases on your card, on the other hand, you have 15 to 25 days to pay the balance before interest begins to accumulate.

There are different types of advances offered by issuers. Some companies allow customers to tap into their credit line. This type comes with a lower limit and enables cardholders to transfer cash from their card to their bank account and to write checks.

Does It Affect Your Credit Score?

The answer to this question is “it depends”. One problem with cash advances is that issuers charge significantly higher interest rates and interest accrues from the moment you withdraw cash from your account. Thus you will pay more in interest charges. If high interest payments affect your ability to cover the minimum, then your credit score may suffer. Cash advances may affect your score indirectly by increasing your utilization ratio and hence your balance. When your credit utilization exceeds 53 percent, your credit score is likely to get affected. Depending on the issuer, the credit limit for advances and purchases may be different and it pays to ask. For instance, your card may have a limit of $5,000 on purchases and $1,500 on cash advances. You may want to inquire about this so that you don’t get overextended. The more you borrow in cash, the more difficult it is to pay it back and your score may plummet. This will make it even more difficult to put your finances under control and back in order.

Fees Involved

Issuers usually charge a fee in the range of 3 to 5 percent. They normally assess fees on the amount drawn against the credit limit. With many issuers the amount charged is shown as a percentage. Thus, if your credit card company charges 3 percent, this means that you will pay $3 per each $100 borrowed. If you get more in cash, for example, $500 and your bank charges 5 percent, you will pay $25 back. Some financial institutions add this fee to the customer’s monthly bill while others deduct it from the advance. There are three types of fees involved, ATM usage fees, interest charges, and transaction fees. ATM usage fees vary but are around $2 – $2.50 on average.

Interest Rates

Interest charges vary from one issuer to another, but the rate is usually 5 – 6 percent higher compared to the bank’s standard rate. The average interest rate on advances is 25 percent but charges vary widely – from 10 to 36 percent. There are financial institutions that offer the same rate on advances and card purchases. The interest charges depend on the number of days interest has accrued. To calculate the charges on your advance, first divide the rate by 365 (number of days in a calendar year). Use this number and multiply it by the amount withdrawn and the number of days interest has accrued. For instance, if you get $800 in cash, the rate is 25 percent, and you paid back in 20 days, your bank will assess $10.96 in charges (25 percent / 365 days = 0.0684 x $800 x 20 days = 1,095.89 /100 percent = $10.96). This means that you will pay about $11 for 20 days.

Alternatives to Cash Advances

There are different alternatives to cash advances, and probably the best option is to ask your parents or family for a small low or no interest loan. Another option is to use cash in your Roth IRA. There are other alternatives to credit card cash advances such as a salary advance from your company, a collateral or secured loan, or a consumer loan from your local bank or credit union. Some borrowers also opt for payday and title loans but the interest charges are significantly higher. This is a good choice for borrowers with tarnished credit who need urgent cash. Payday loans are convenient and easy to get, and finance companies often advertise online application and instant approval. Peer to peer loans are also offered to individual borrowers. The good news is that private lenders have more lenient approval criteria compared to banks. Some lenders should be avoided at all costs because they use blackmail, threats of violence, and other illegal practices. Loan sharks are one example.

What Not to Do

Obviously, it is best to avoid cash advances altogether and use money in your savings account to meet urgent expenses. Using advances on a regular basis makes you a risky borrower in the eyes of potential creditors. It is quick and simple to withdraw money from an ATM which can lead to a downward debt spiral. The problem is that many customers find cash advances too convenient and use their credit cards to get quick cash. Some borrowers also use their cards to pay existing balances such as consumer and student loans. This is a bad idea because unsecured loans go with a significantly lower rate compared to advances on your credit card. There are circumstances, however, when tapping into your credit line makes sense. This is the case when you have utility bills or medications to pay for and there are no other ways to meet these expenses. In other words, this is a borrowing solution to use in emergencies if you have exhausted all other options.

Conclusion

Cash advances are offered by many credit card issuers, including finance companies, unions, and banks. This is a useful option in case of emergency when you need cash immediately. However, it is also quite expensive and should be used as a last resort. In addition to the higher interest rates, there is no grace period. Lenders offer high rates because they know that borrowers who tap into their line are desperate for money. Given the many alternatives available, it pays to shop around and contact local financial establishments for a small loan. If you get an advance, however, keep in mind that this is not a long-term solution to your financial worries. You should pay back as quickly as possible. Better open a savings account and use it as a rainy day fund for emergencies.

People take out payday loans for a variety of reasons, but mostly to cover emergency expenses such as urgent home and vehicle repairs, household appliance repairs, electrical problems, outstanding bills and others. With rising prices and inflation, more and more Canadians are struggling to keep ends meet. Cash loans help borrowers pay bills and avoid late payment penalties and charges.

What Are Online Payday Loans?

A payday loan is a form of short-term financing repaid when the customer gets his next paycheck. Consumers are asked to write a post-dated check as a guarantee of timely repayment. Some lenders offer small loans with very high interest rates and terms varying from 2 weeks to 2 months. The easiest way to apply for an instant loan is online. Many providers advertise no credit check, online applications, and instant or quick approval. It takes days and even weeks to get approved for a regular loan, and banks usually require a solid credit history to get approved. This type of short-term loan is offered to individuals who need urgent cash. It is a last resort for debtors who have exhausted all other options for financing. On the downside, the high interest rate adds to the cost of borrowing, meaning that consumers pay a lot in fees and charges. Another problem is that this is a temporary solution and not a long-term solution to major financial problems. On the good side, short-term loans are convenient and easy to qualify for. There are established and reliable providers, from small establishments to franchise and large chain providers. Some providers actually operate much like brick-and-mortar banks. Many issuers offer handy tools such as status updates, account reminders, due date notifications, extension notifications, and others.

What You Need to Know When Applying for Payday Loans Online

Providers offer loans to individuals who are employed, have a checking account, and are of the age of majority. Proof of income is required as a guarantee of payment. Customers fill in their contact and personal information, including their mobile and home phone, time to call, time at current address, and whether they own or rent. Identity verification information may be required as well. With some providers, clients are asked if they are currently considering or filing for bankruptcy. Note that the due date and other details are included in the agreement. Late payment fees apply in case of failure to pay by the due date. Consumers who apply for an online payday loan write a check for the amount requested and sign an agreement. They also pay a fee for the service provided. Once the loan has been paid off, clients are free to reclaim the check. The fees, repayment terms, and rates vary by location.

What Is the Law in Canada Regarding Payday Loans?

Cash loans are legal in many Canadian provinces, and providers operate in accordance with provincial regulations regarding interest rates and fees. The maximum charges and fees vary by province but there are caps on the rates charged by providers. Manitoba has enforced restrictive caps, with lenders charging rates of up to 17 percent of the principal. In contrast, Nova Scotia set caps at 31 percent. Saskatchewan, Alberta, and British Columbia have set the maximum rate at 23 percent. Payday loans are prohibited by law in Quebec and Newfoundland. The cap is set at 25 percent in Prince Edward Island and Nova Scotia. Under federal law, the cap is at 60 percent meaning that the annual rates are limited to 60 percent. Bill C-26 was enforced to change the criminal interest rate and addresses loans by organized crime and predatory lenders. Basically, rates above 60 percent are criminal under section 347.1 of the Canadian Criminal Code. Borrowers are also protected under the Canadian Payday Loans Act which prohibits rollover loans and sets interest rate caps. In addition, the contract can be cancelled within two workdays without incurring penalty charges. In accordance with the Payday Loans Act, lenders are required to disclose information such as the interest charges (what you will pay), the term or length of the amount borrowed (number of days). These details must be present in the financing agreement. Providers must not accept or request payments by means of automatic deduction. Lenders are not allowed to contact acquaintances, neighbors, friends, and family members at any time. They are prohibited from using excessive pressure, threatening language, and other abusive and intimidating practices.

Canadian Payday Loan Providers

There are established Canadian fast loan providers such as Money Mart, Zippy Cash, Maple Loans, and others.

Maple Loans

Maple Loans offers short-term loans to applicants who meet the minimum income requirements and are Canadian residents. The interest rate and amount offered depend on the customer’s individual circumstances. Consumers are asked about their employment history, including pay frequency, length of employment, monthly net income and job title, next payday, and so on. Clients also fill in banking information such as type of account, bank account number, institution number and name, as well as transit number and time at bank.

Zippy Cash

This is another instant loan provider that advertises instant approval, online application, and cash conveniently and safely deposited into the customer’s bank account. The loan amounts vary from $500 to $1,500. A point system is used to determine the amount customers qualify for. Early repayment options are available, and there are no early prepayment penalties. Individuals who are unable to repay their loan are offered alternative repayment arrangements. Persons who fail to notify the provider may face collection procedures.

Money Mart

Money Mart offers loans to individuals in six provinces – Saskatchewan, Ontario, Nova Scotia, New Brunswick, British Columbia, and Alberta. The loan amounts vary from $120 to $1,500. The interest rates vary by province. For example, borrowers pay $17 per $100 in Manitoba, $23 per $100 in British Columbia, $21 per $100 in New Brunswick, and $25 per $100 in Nova Scotia. Customers can apply for one loan at a time. Only consumers with a valid photo ID, active phone number, proof of steady income, and valid checking account qualify for a financing.

Dollars Direct

Dollars Direct also offers cash loans of up to $500 to new clients and up to $1,500 to regular and returning customers. Borrowers enjoy quick application and approval, and funds are deposited into their bank account. Financing is offered to residents of British Columbia, Saskatchewan, Ontario, and Alberta. Two payroll methods are accepted, by check and through direct deposit. Applicants who are employed and are of legal age meet the criteria. The rate offered varies by province. The term varies from 8 days to 40 days and the due date is usually the next payday. Early prepayment options are available, and no penalties or fees apply. There are different payment options, through the customer’s bank account, by wire transfer, prepaid card, credit card, pre-authorized withdrawal, money order, and personal check.

Wonga

Operating in Ontario, Alberta, and British Columbia, Wonga is a reputable short-term loan provider that advertises instant decision making, secure application, and no hidden charges. The rate offered varies by province, for example, borrowers in Alberta pay $23 per $100. The loan term varies from 1 to 45 days, and consumers can borrow up to $400. Customers benefit from an easy-to-use online calculator that shows the total amount to pay. For example, if you borrow $300 over a 14-day period, you will pay a total of $330, including interest rates and fees, and if you borrow $400, you will pay $492 in 45 days. To apply for a loan, clients specify their marital and housing status, gender, and employment status (on benefits, retired, homemaker, temporary employment, full-time, etc.)

Criticism

Unfortunately, some lenders are dishonest and unscrupulous and use illegitimate practices so it pays to check who you are dealing with. One of the main criticisms is that payday lenders use predatory practices and target low-income individuals, families, and communities, immigrants, and the elderly. Lenders target the working poor, single parents, and people who desperately need cash. Loan sharks are also said to target vulnerable students and minorities and persons with poor financial literacy. Another problem is that loan sharks use harassment and other illegal and abusive practices such as blackmail, threats of violence, and aggressive and abusive collection practices. Predatory lenders use threats of court and law enforcement action and make abusive calls at any time of the day. Deceptive advertising is yet another problem. The outrageous interest rate offered by some providers is also a major concern. Some issuers offer loans with triple-digit and even four-digit interest rates. Some payday lenders repeatedly attempt to collect their dues and borrowers incur insufficient funds fees. While unsecured loans are easy to get if you are employed and have a bank account, borrowers often fall into a debt spiral, especially if they are already in a financial jam. Ease of access is a source of concern, and debt-ridden individuals are often tempted to use quick cash to solve their financial problems. Some payday lenders fail to disclose their annual interest rates and finance charges and use vague wording and complex financial terminology. Fortunately, in their majority, the lenders are reputable and accredited and offer clear guidelines and information on eligibility, criteria, rates, fees, and other details. One of the reasons is that many providers depend on repeat borrowers to make profits.

Many bad credit loan providers in Ontario, Canada offer financing to individuals with tarnished credit. They offer payday loans, home equity lines of credit, and other types of financing.

Bad Credit Lenders in Toronto and the GTA

Tribecca is a private provider that offers loans to help repair and establish credit, pay medical and unexpected expenses, and consolidate bills. Prudent Financial offers home, consumer, and car loans to customers with tarnished credit. If you are trying to find bad credit loans in Toronto, Mississauga, Brampton and the rest of the GTA, Addison Credit offers financing to debtors with poor credit, newcomers to Canada, and borrowers with a history of repossessions, bankruptcies, and other negative events. If you live in Mississauga or Brampton, Dixie Auto Loans, Easy Financial, and Home Trust also provide loans for people with bad credit. To get approved, customers fill in employment and personal information such as months at employer, gross annual income, and position. Borrowers who filed for bankruptcy or are in undischarged or discharged consumer proposal often qualify.

Where to Find Bad Credit Loans in Ottawa

Customers looking to apply for a car loan in Ottawa can do so at Drive Time Ottawa, Easy Financial, and BHM Financial Group. Lenders take into account factors such as term of residency, length of employment, stable income, and income level. To apply, customers present information such as proof of vehicle ownership, proof of residency and income, and ID. References increase your chances of getting approved.

Lenders in Hamilton for Individuals with Poor Credit

Fitzgerald Motors, Prudent Value Cars, and Ezee Credit offer financing to customers. To apply, clients provide information about their income, occupation, marital status, housing cost, and address. Residents who are employed full-time usually get approved. Customers with a history of credit counseling, consumer proposals, and bankruptcies usually qualify.

Unsecured Loan Lenders in London, Windsor and South Western Ontario

Issuers such as Ezee Credit and Prime Motors of London provide loans to customers who are new divorcees, borrowers poor or no credit exposure, and bankruptcies. To apply, customers provide information such as occupation, main source of income, income before tax, SIN, and others. Companies such as DollarsDirect and Strickland’s offer loans to individuals with less than perfect credit in Windsor. Applicants with missed card payments, multiple collections, no credit, closed accounts, and missed payments are not turned down at DollarsDirect.

Who Offers Bad Credit Loans

Try Banks

Banks offer loans to customers with poor credit history but they usually qualify for secured financing such as home equity lines of credit and home equity loans. Canadian lenders offer rate quotes based on information such as the amount required, credit score, and loan purpose, for example, medical expenses, relocation and moving, car financing, home purchase, home improvement, or credit card refinancing. When applying for loans, customers provide information such as additional and individual income, date of birth, and address. Individuals with stable employment have a better chance of getting approved. Those who offer collateral are more likely to get a loan with bad credit.

Credit Unions

Credit Unions help people with bad credit and offer low-cost financing to their members. The best options are community-based and employer-affiliated unions that operate as community banks and are owned by their members. They are willing to discuss their customers’ personal and financial situation. Credit unions look at customers more personally and are more willing to work with them. They make a decision on whether to lend or not based on the borrowers’ promise to repay and their individual circumstances.

Go Online to Search for Bad Credit Lenders

Another option is to check places like the yellow pages and kijiji. Online bad credit lenders list their ads and advertise loans for bad and no credit. You will find cash advance and payday loan listings, credit and debt counseling services, and other loan providers. There is an option to sort by location and category to find providers that offer bad credit auto loans, consumer loans, and other financing options.

Use Debt Consolidation Lenders and Services

Debt consolidation is another option for individuals who are looking for financing. Lenders and services offer consolidation loans to borrowers with multiple revolving and installment debts but the rate can be higher if you have tarnished credit. There are many benefits to debt consolidation, and issuers advertise no hidden fees, no prepayment penalties, flexible payment schedules, and competitive rates. Other benefits include easier budgeting, no collection calls, and credit score improvement if payments are made on a regular basis. The loan amount varies but some providers offer up to $35,000. Issuers usually offer several consolidation options with different rates, fees, and payment terms. Some issuers offer terms of 1 to 5 years so that customers get rid of debt faster and save on interest. Lenders offer the option to consolidate loans, overdrafts, credit card accounts, and other balances. While debt consolidation companies offer loans to individuals with tarnished credit, they usually require proof of income such as pension or salary.

Try Payday Loan Lenders

Payday lenders are considered a last resort because they provide loans with short terms and extremely high rates. At the same time, this is often the only choice for people who are short of cash and face an emergency. Payday lenders offer other benefits such as quick approval, easy application, and less stringent requirements compared to brick-and-mortar banks. Just avoid controversial providers that charge broker fees. There are con artists that use fraudulent websites and request details such as credit card numbers and identification. They make unauthorized withdrawals, and customers find their account emptied. Other than that, there are reputable payday lenders that offer emergency cash. The money can be used to pay bills, utility bills, groceries, credit card balances, fees and charges, and other expenses.

Other Providers

Loan brokers and providers such as MoneyMart, Lending Tree, Prosper, Lending Club, and Citifinancial also offer bad credit personal loans in Canada. Customers with consumer proposals, history of poor credit, and loans in arrears qualify.